Moody’s downgrades US debt for the first time since 1917, triggering market volatility and renewed concerns over fiscal policy.
Moody’s Downgrades US Debt: A Historic Shift
TWC Magazine: In a landmark move, Moody’s Investors Service has downgraded the United States’ credit rating from its long-held AAA status to AA1. This marks the first time since 1917 that the U.S. has lost its top-tier credit rating from all three major agencies. Moody’s cited escalating national debt and persistent budget deficits as primary factors behind the downgrade.
Market Turmoil Follows Downgrade
The immediate aftermath saw significant market reactions. U.S. stock futures plummeted, with the Dow Jones Industrial Average futures dropping 350 points (0.8%), the S&P 500 futures falling 1%, and Nasdaq futures declining 1.4%. Treasury yields surged, with the 10-year yield reaching 4.5%, indicating a sell-off in government bonds. Conversely, gold prices rose 1.4%, reflecting a flight to traditional safe-haven assets.
Debt-to-GDP Ratio Reaches Alarming Levels
The U.S. government’s debt has ballooned to approximately $36.56 trillion as of March 2025, with a debt-to-GDP ratio nearing 124%. This figure has more than doubled since 2011, raising concerns about the nation’s fiscal sustainability. Analysts warn that without significant policy changes, the debt burden could continue to escalate, leading to higher interest payments and potential economic instability.
Treasury Secretary Dismisses Downgrade as Outdated
Treasury Secretary Scott Bessent has downplayed the significance of Moody’s downgrade, labeling it a “lagging indicator.” He attributed the current fiscal challenges to spending decisions made during the previous administration. Bessent emphasized the administration’s commitment to stimulating economic growth through proposed tax cuts, despite projections indicating that such measures could increase the deficit by up to $2 trillion over the next decade.
Implications for Investors and Policymakers
The downgrade serves as a stark reminder of the growing fiscal challenges facing the U.S. Investors may reassess their portfolios, potentially shifting away from U.S. assets in favor of international or alternative investments. Policymakers are under increasing pressure to implement strategies that address the rising debt levels and restore confidence in the nation’s financial stability.
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